Excellent analysis, but here is a counter-argument – this really is a paradigm shift. A tight labor market plus rising average wages is not what the last forty years of domination by the rentier-investor class has gotten people used to. But it is certainly a welcome picture for the Democratic Party overall. Powell's fire and brimstone rhetoric is for the boys and girls on Wall Street. (They believe all that 1970s monetarism stuff.) If pursuing the dual mandate, as opposed to paying lip service to it, means anything it is that we can and ought to put up with inflation at 4% after the structural aftershocks of the pandemic have subsided. The European energy shock ought not to hit the US in anything like the same way as a major oil and gas producer. The supply chain shocks will ease. The channeling of Volcker is a poor guide to what will happen going forward and some of the savvier (larger) market players suspect that.
Hi Alf. Thanks for your analysis. I have serious question though. Everyone and I mean literally everyone on CNBC, Bloomberg etc has large cash position and/or short. In this situation who will capitulate to create a drawn down of 200 points on S&P as you mention. Someone has to sell big time to create this downward pressure right ? Hope you clarify this up for me. Thanks
Alf, thank you for your efforts - you are really good at explaining complex topics (in a second language no less!).
I would love it if you went more into why the USD is so strong. I'm a bit baffled by this. I get that there is a rate differential, but the reason for this is that the US overstimulated its economy and is now having to fight structurally high inflation (vs. the more energy- and supply chain-driven inflation in other countries).
So is this this formula for a strong currency?
1. Run extremely hot fiscal and monetary policy
2. When inflation gets out of control, have the CB raise rates
3. Since your cash rates are now higher than those countries that ran more responsible policy, your currency will rise against those countries
That can't be right! I am clearly missing something here, but that's what seems to be implied by the rate differential argument. How does it not matter that the REASON for higher USD rates is that we have an inflation crisis that's much more embedded than those in other countries? I'll note here as well that the USD REER is at multi-decade high, implying very stretched valuations.
I would love to hear your take on this topic. Whether you get to it or not, thanks for everything.
Thanks Alf, lovely read. I can see you referenced potentially long gold later down the line. But, with rates likely higher for longer now seems the perfect environment to go short. At least until any pivot?
Hey Alf, I was wondering if you could comment on some of Darius Dale's points about the increased risk of a Goldilocks environment. I tend to see your side more than his, but I wanted to hear your thoughts. Thanks!
Great article Alf. I think when we go down we will go down further than expected. It seems we always do that. The pendulum swings too far both ways. Will be lots of opportunities in the future.
Thanks for the great post and video. Regarding the portfolio, not sure about the yen positions -
commodities are overbought and AUD/CAD are proxy currencies to commodities, but at least they are backed by physical assets (oil, minerals), also Canada and Australia are hiking rates and Japan I think is not, so maybe the trend of AUDJPY and CADJPY will continue higher for now - though the counter argument is during recession the demand for materials will ease and these might drop, I guess that's why you shorted. Also instead of short the Russell what if we shorted Nasdaq? I think tech stocks are weaken in a recession. Keep up the good work and thanks again!
Sep 2, 2022·edited Sep 2, 2022Liked by Alfonso Peccatiello (Alf)
Hi Alf, huge fan. Please could you investigate different mic options, or place the mic closer to your mouth like some other podcasters do. The combination of the echo in your room and certain frequencies missing from your voice mean I have to keep rewinding to understand you sometimes. Which, of course, I'm happy to do because your content is incredible! (E.g. in your Kitco interview today, if you listen to that, you'll see a huge difference in the midtones in your voice vs David)
Hey Alf, what are your thoughts on LT yields and the fact that the market will have to absorb ~1T USD worth of treasuries in the next 12 months as per QT. The risk that this pushed yields even higher seems pretty clear; what other factors are there that one needs to consider on this equation?
Excellent analysis, but here is a counter-argument – this really is a paradigm shift. A tight labor market plus rising average wages is not what the last forty years of domination by the rentier-investor class has gotten people used to. But it is certainly a welcome picture for the Democratic Party overall. Powell's fire and brimstone rhetoric is for the boys and girls on Wall Street. (They believe all that 1970s monetarism stuff.) If pursuing the dual mandate, as opposed to paying lip service to it, means anything it is that we can and ought to put up with inflation at 4% after the structural aftershocks of the pandemic have subsided. The European energy shock ought not to hit the US in anything like the same way as a major oil and gas producer. The supply chain shocks will ease. The channeling of Volcker is a poor guide to what will happen going forward and some of the savvier (larger) market players suspect that.
The best newsletters I can find about the Macro investment. Two quick questions
1: any specific reasons to set $107 (not lower or higher) as your next TLT target to add
2: where you get those beautiful charts
Thanks for your newsletter. really love your work.
Hi Alf. Thanks for your analysis. I have serious question though. Everyone and I mean literally everyone on CNBC, Bloomberg etc has large cash position and/or short. In this situation who will capitulate to create a drawn down of 200 points on S&P as you mention. Someone has to sell big time to create this downward pressure right ? Hope you clarify this up for me. Thanks
Alf, thank you for your efforts - you are really good at explaining complex topics (in a second language no less!).
I would love it if you went more into why the USD is so strong. I'm a bit baffled by this. I get that there is a rate differential, but the reason for this is that the US overstimulated its economy and is now having to fight structurally high inflation (vs. the more energy- and supply chain-driven inflation in other countries).
So is this this formula for a strong currency?
1. Run extremely hot fiscal and monetary policy
2. When inflation gets out of control, have the CB raise rates
3. Since your cash rates are now higher than those countries that ran more responsible policy, your currency will rise against those countries
That can't be right! I am clearly missing something here, but that's what seems to be implied by the rate differential argument. How does it not matter that the REASON for higher USD rates is that we have an inflation crisis that's much more embedded than those in other countries? I'll note here as well that the USD REER is at multi-decade high, implying very stretched valuations.
I would love to hear your take on this topic. Whether you get to it or not, thanks for everything.
Thanks Alf, lovely read. I can see you referenced potentially long gold later down the line. But, with rates likely higher for longer now seems the perfect environment to go short. At least until any pivot?
Hey Alf, I was wondering if you could comment on some of Darius Dale's points about the increased risk of a Goldilocks environment. I tend to see your side more than his, but I wanted to hear your thoughts. Thanks!
Excellent guidance, IMHO.
Today, I bought TLT & ZROZ.
Great article Alf. I think when we go down we will go down further than expected. It seems we always do that. The pendulum swings too far both ways. Will be lots of opportunities in the future.
Nice one, Alf!
Thanks for the great post and video. Regarding the portfolio, not sure about the yen positions -
commodities are overbought and AUD/CAD are proxy currencies to commodities, but at least they are backed by physical assets (oil, minerals), also Canada and Australia are hiking rates and Japan I think is not, so maybe the trend of AUDJPY and CADJPY will continue higher for now - though the counter argument is during recession the demand for materials will ease and these might drop, I guess that's why you shorted. Also instead of short the Russell what if we shorted Nasdaq? I think tech stocks are weaken in a recession. Keep up the good work and thanks again!
Hi Alf, huge fan. Please could you investigate different mic options, or place the mic closer to your mouth like some other podcasters do. The combination of the echo in your room and certain frequencies missing from your voice mean I have to keep rewinding to understand you sometimes. Which, of course, I'm happy to do because your content is incredible! (E.g. in your Kitco interview today, if you listen to that, you'll see a huge difference in the midtones in your voice vs David)
Thanks, Brother Alf. I’m buying ZROZ vs. TLT. Same thing, correct? Can you share a next buy level on ZROZ? Happy Weekend!
good piece, thanks
"next TLT target to add: 107"
How low do you think TLT will go before it reverses?
Hey Alf, what are your thoughts on LT yields and the fact that the market will have to absorb ~1T USD worth of treasuries in the next 12 months as per QT. The risk that this pushed yields even higher seems pretty clear; what other factors are there that one needs to consider on this equation?
Love your work, many thanks Alf!